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Glentree Estates, Beauchamp Estates and Savills v Favermead Ltd
A recent Court of Appeal case confirms that agents do not have to be the “effective cause” of a sale to receive commission
In this case, Savills were the lead agent in a £1million commission claim on the sale of one of Britain’s most expensive homes.
The house in Kensington Palace Gardens was bought in 1995 by a company owned by Professor Khalili. It then sold in September 2001 to a Liechtenstein trust company whose beneficiaries were the family of Bernie Ecclestone of Formula 1 fame. The sale price was £50 million plus a 50% share of any profit on a resale within five years.
In 2001 the three estate agents led by Savills, had been instructed by Favermead, a company owned by Professor Khalili, to market the property on the basis that they would receive a fixed fee of £1 million on completion of the sale if one of the agents introduced the buyer. A reduced fee of £200,000 would be payable if Favermead introduced the buyer.
The agents had no connection with the 2001 sale and when they became aware of it, Professor Khalili proposed that they should continue to seek a buyer for a resale on the same basis as to fees as had previously been agreed. Two years later the agents introduced a potential purchaser, the family of Lakshmi Mittal, the steel tycoon who tops the UK Rich List. The property was viewed by the Mittals who offered £65 million but this was rejected by Savills on the basis that any offer had to be over £70 million. The agents had no further involvement but later learnt that the property had been sold to the Mittals for a sum below £70 million. The agents began legal proceedings, claiming £200,000 on the first sale and £1 million on the second.
The Court of Appeal decided that:
- even if the agents had been entitled to the fee of £200,000 on the first sale, they had waived this entitlement in return for the chance of earning full commission on the resale
- the estate agents only needed to have introduced the buyer to earn their commission of £1 million
Favermead had argued that this was not payable on the basis of the principle of ‘effective cause’ that requires an agent seeking commission to prove not only that the property was sold to a party that it had introduced but that its endeavours were the cause of that sale. This avoids any possibility of more than one agent claiming commission and normally means that the agent has to earn the commission by doing more than just making the introduction. However, the Court of Appeal made clear that an agent does not have to be the effective cause if the commission agreement does not require this. The court did particularly note that this was not a normal residential agency situation but a one-off agreement relating to a special property made by companies with professional advisors. The Court also took on board Counsel’s argument that it would be ‘bizarre’ if the agents were to receive a 20% commission for making no introduction but would get no commission at all for introducing a buyer where they were not the effective cause but where the sale completed.
Sellers of property need to check commission agreements carefully to ensure that commission is only payable where the agent is the effective cause of the sale to ensure that there is no possibility of two commissions becoming payable.
This article contains information of general interest about current legal issues. It does not give legal advice and specific advice should always be sought about your particular circumstances. We will be happy to assist.
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